Performance management is an ongoing process, not just an annual event, that allows managers to step in early if an employee's performance is slipping. It includes performance appraisals, which are vital for supervisor-employee relationships, offering structured communication, feedback, and documentation for employment decisions.

• Ongoing Process: Performance management should be continuous to allow for timely intervention
• Performance Appraisal: Also known as performance evaluation or review, it assesses how well employees perform over a specific period
• Relationship Building: Appraisals can strengthen the bond between supervisors and direct reports
• Structured Communication: Appraisals provide a framework for positive feedback, recognition, and discussion of improvement areas
• Documentation: Appraisals offer essential documentation for employment decisions, both positive (promotions) and negative (adverse actions)

Elements of a Performance Appraisal

Effective annual reviews should include several key elements to ensure a comprehensive and fair assessment of employee performance.

• Supervisor Assessment:
• Review goals and objectives set at the beginning of the review cycle
• Evaluate whether results were achieved and identify any deficiencies
• Determine if deficiencies were due to employee performance or external circumstances
• Develop a plan to address discrepancies
• Employee Self-Assessment:
• Employees assess their own performance as part of a two-way conversation
• Advance notice allows for reflection on past performance, future goals, and professional development interests
• Assessment from Others:
• Gather feedback from individuals who interact with the employee daily
• 360-Degree Feedback: Data from internal and external sources like peers, subordinates, supervisors, customers, and suppliers. HRCI defines this as multi-rater feedback.
• Goal Setting:
• Plan for the future using strategic changes and supervisor goals
• Employee participation in goal setting is crucial for commitment
• Development Goals:
• Supervisors provide development opportunities to address deficiencies or prepare employees for the next level

Timing of Performance Appraisals

Performance appraisals can be timed in different ways, each with its own advantages and disadvantages.

• Employee Anniversary Dates:
• Reviews are conducted throughout the year
• Advantage: Fewer reviews at one time
• Disadvantages: Difficult to manage salary increases and use comparative appraisal methods
• Managers must plan adequately for salary increases to ensure high performers are appropriately rewarded
• Focal Review Period:
• All employees are reviewed at the same time
• More difficult for managers and HR due to the volume of reviews
• Advantage: Easier to allocate rewards based on performance levels and use comparative appraisal methods

Performance Appraisal Methods

There are various methods to evaluate employee performance, ranging from quantitative data to qualitative factors.

• Comparison Methods: Compare employees to one another
• Ranking: List employees from highest to lowest performer
• Works well for small groups
• Paired Comparison: Compare each employee to every other employee in the group
• Example: Susan vs. Jack, Susan vs. Rachel, Jack vs. Rachel.
• Forced Ranking: Rank employees according to a bell curve
• Also known as forced distribution or forced choice.
• Helps reduce leniency or harshness biases.
• Rating Methods: Use scales and checklists to evaluate performance
• Rating Scales: Numeric scales or phrases like "exceeds expectations"
• Attempt to quantify subjective processes.
• Checklists: List of statements describing performance levels
• Reviewer checks off descriptions that best fit the employee.
• Descriptions may be weighted to calculate a rating score.
• Narrative Methods: Managers describe employee performance (Performance Appraisal Methods).
• Critical Incident: Supervisors note successful and unsuccessful performance issues during the review period
• Reviewed and presented to employees in a written narrative.
• Essay: Reviewer writes a short description of each employee’s performance
• Provides flexibility for managers to cover important areas.
• Field Review: Appraisal conducted by someone other than the supervisor
• Can be an HR practitioner or an external party.
• Behavioral Methods: Focus on specific behaviors
• Behaviorally Anchored Rating Scale (BARS):
• Combines qualitative and quantitative data
• Compares performance against specific examples of behavior attached to numerical ratings.
• Uses job descriptions to create dimensions representing job requirements.
• Anchor statements represent varying levels of performance behaviors.
• Inter-Rater Reliability: Uses multiple raters to reduce bias
• Scores are averaged to provide a fair review.

Training evaluators ensures fairness and consistency in the appraisal process, addressing concerns about bias and varying standards.

• Purpose of Training:
• Ensure everyone starts from the same place
• Evaluators should understand the purpose of evaluations (not just for wage increases)
• Learn methods of providing feedback (formal and informal)
• Understand behaviors being rated and how to differentiate between employees
• Be aware of common rater errors like leniency and bias
• Training Content:
• Activities before, during, and after the appraisal meeting
• Before the Meeting:
• Preparation helps alleviate stress and discomfort
• Goal: Make employees feel valued and motivate them to improve
• Schedule the meeting for a mutually convenient time with sufficient time for open conversation
• Give advance notice (ideally one week minimum)
• Avoid scheduling during deadlines or other commitments
• Provide a self-appraisal form or questionnaire to complete before the evaluation
• Provide a copy of the completed appraisal at least one day before the meeting
• Use the same appraisal criteria for all employees in the same job category
• Review the job description, performance standards, goals from previous appraisals, and critical-incident logs
• Complete the review form with specific, job-related comments
• Ensure the appraisal is balanced
• Use quantitative measurements whenever possible
• Provide specific information on expectations and feedback methods
• Document performance problems to avoid future litigation
• Arrange a private area for the meeting
• During the Meeting:
• Adequate preparation is essential
• Opportunity to communicate about feedback, expectations, goals, and rewards
• Evaluator’s goal: Acknowledge the employee’s value and provide constructive feedback
• Set a tone of mutual respect
• Discuss the appraisal forms exchanged prior to the meeting
• Seek to understand the employee’s perspective and revise the appraisal if warranted
• Discuss training options and development needs
• Set goals for the next review period with employee involvement
• Communicate expectations clearly
• Give the employee an opportunity to ask questions
• Discuss rewards such as salary increases, bonuses, or promotions
• Have the employee sign necessary paperwork
• After the Meeting:
• Provide information on completing the appraisal process
• Encourage continuous feedback as part of daily interaction
• An appraisal with no surprises is easier on supervisors and employees
• Non-supervisory Evaluators:
• Coworkers in 360-degree appraisal systems should receive training
• Training should cover the appraisal process and the importance of job-related feedback
• Evaluators should be aware of biases

Compensation practices require balancing operational efficiency and strategic alignment, evident in salary surveys, benchmarking, job evaluation, and job pricing.

• Compensation Strategies: Approaches and policies to manage employee compensation.
• Aim to attract, motivate, and retain employees.
• Align compensation with organizational goals, budget, and market standards.
• Pay for Performance: Linking compensation to performance.
• Competency-Based Pay: Rewarding employees based on skills and knowledge.
• Market-Based Pay: Setting compensation based on market surveys.
• Internal Equity: Ensuring fair compensation within the organization.
• Pay History Bans:
• Several states ban employers from asking about salary history. These include: Alabama, California, Colorado, Connecticut, Delaware, District of Columbia, Hawaii, Illinois, Maine, Maryland, Massachusetts, Nevada, New Jersey, New York, North Carolina, Oregon, Pennsylvania, Rhode Island, Vermont, Virginia, and Washington.
• HR must base compensation offers on the value of the job in the marketplace
• Systematic approach to creating wage bands using market data is essential
• Budgeting:
• Employee wages and benefits are a large portion of business costs
• HR professionals must work with line managers and finance professionals
• Compensation and benefit budgets are projected during the annual budget process
• Budgets consider increases to base salaries and adjustments to salary structure.
• Budgets are also projected for incentive pay programs and planned promotions.

Job evaluation determines the value of jobs relative to each other in the organization, aiming to remove subjectivity.

• Process:
• Conducted when a job is developed, when duties change, or as part of a routine process
• HR professionals partner with line management.
• Defined methods allow for a repeatable process.
• Compensable Factors: Characteristics that define and distinguish jobs.
• Example: Junior-level engineer's factors include education and experience.
• Ranking Method: Evaluators compare the value of jobs to one another.
• Subjective method influenced by preconceptions.
• Simple and cost-effective for small organizations.
• Difficult to compare unrelated jobs.
• Classification Method: Identifying key benchmark positions.
• Benchmark positions are common to organizations (e.g., accountants).
• Jobs are matched to benchmark positions and classified according to value on a vertical scale.
• Benchmark positions are associated with a grade on a hierarchical salary structure.
• Positions with similar characteristics are slotted into the same grade or level.
• Companies must determine internal equity, or the value of jobs to each other relative to their value to the organization.

Job Pricing

Job pricing determines the appropriate pay level for a position, especially when a new job is created or an existing job changes.

• Process:

1. Review the job description to understand the level, scope, responsibilities, and skills.
2. Select a salary survey, considering the type and number of participants.
3. Ensure data is relevant to the job's location.
4. Look for competitors or premier employers in the survey.
5. Review compensation components such as base pay, variable pay, and equity pay.
6. Review multiple matches for a position to ensure data reliability.
7. Recommend a salary range in alignment with the organization’s compensation philosophy.
8. Consider incentive pay or special pay programs.

• Validation:
• Review job-pricing results with management to validate the survey positions and data.
• Slot the job into the appropriate pay range and grade.

Key Terms

Important terms to understand in the context of job evaluation and compensation.

• Job Benchmarking: Comparing internal jobs with similar jobs in the relevant labor market.
• Creates an anchor point to determine whether to lead, lag, or match the market in pay rates.
• Job Ranking: Compares jobs to each other based on their importance to the organization.
• Job Classification: Arrangement of different types of employment or grades within an organization according to skills, experience, or training.
• Job-Content-Based Job Evaluation: Method to estimate how much a person should be paid based on what they do.

Legal Concerns and Salary Surveys

Legal considerations and best practices for using salary survey data.

Key Points

• Wage Setting/Price Fixing: Violation of antitrust laws (There are some legal concerns in sharing compensation information).
• Agreements among competitors not to poach talent or counter-offer higher wages are illegal.
• Participate in formal surveys instead of informal methods.
• Benchmarking: Validating existing job descriptions to identify the external market rate.
• Use three-to-five sources for accurate descriptions.
• Reliable sources include O*NET Online and Career One Stop.
• Salary Surveys: Gather compensation and benefits data reflecting current trends.
• Provided by professional services vendors or compensation consulting firms.
• Identify trends in labor costs.
• Ensure compensation and benefits programs attract, retain, and motivate employees.
• Types of Salary Surveys:
• Employee Surveys: Gauge employee satisfaction with pay structures.
• Government Surveys: Bureau of Labor Statistics (BLS) is a great source.
• Industry Surveys: Specific surveys for industries like high-tech and hospitality.
• Commissioned Surveys: A third party conducts a survey, aggregates the data, and supplies the results.
• Informal Data Collection:
• HR professionals exchange information on pay practices with counterparts in other organizations.
• Work with a local/regional HR or compensation association.
• Survey Participation:
• Include 65–70 percent of organization jobs in a survey.
• Confidentiality:
• Keep salary survey data confidential to comply with legislative mandates.